FX Interventionski: Russian Ruble Amid Oil Rout

♠ Posted by Emmanuel in , at 10/14/2014 01:30:00 AM
Poor Russia; it always pick the worst time to have a crisis. 
The trouble with being a commodity-dependent country is that putting all your eggs in one basket is bound to have deleterious effects when downturns in the prices these commodities command occur. Unfortunately for Russia, its worst downturns coincide with steep falls in commodity prices. In 1998 when it famously went to the IMF poorhouse, oil prices were around $18 a barrel. $20/bbl oil! It almost makes you wish China didn't grow so much, but being a charitable sort, I am thankful for all those Chinese lifted out of poverty over this time. The Russians were also rather grateful as Vladimir Putin became Russian president shortly thereafter, erasing the memory of the traumatic Boris Yeltsin years.

Fast-forward sixteen years and it is Putin's turn in the hot seat. As if ill-advised military adventurism and sanctions weren't enough to deal with, recent evidence of the global economy slowing down is causing oil prices to decline anew. Sure $88/bbl oil doesn't sound so bad compared to $18/bbl oil for producers, but the trouble is that Russian production costs have risen since way back when since it doesn't exactly have Western levels of efficiency. What's more, expectations for turning a profit selling oil overseas was predicated on a rather higher market price. As of last year, it was...
Russia will probably require an average Brent oil price of $117.8 a barrel this year to balance its budget, the fifth straight year it’s needed crude above $100 and compared with break-even prices of $90.3 for Saudi Arabia and $65 for Kazakhstan, Deutsche Bank AG said in a May 10 report.  
This sets the stage for what's happening to Russia at the moment. In advance of the damage sanctions will cause as well as lower oil prices, the ruble has plummeted. Simultaneously, the central bank has been intervening in a big way to stem the currency's downward spiral. How "big"? Try $6 billion for starters:
The ruble extended its longest losing streak in more than a year as $6 billion of Russian currency interventions failed to stem the depreciation amid tumbling oil prices. The ruble weakened 0.6 percent versus the dollar-euro basket to 45.3303 by 6 p.m. in Moscow, taking its seven-day decline to 2.3 percent, the longest stretch of losses since the nine days ended Aug. 1, 2013. Oil, which along with natural gas contributes almost half of Russia’s revenue, fell 2.2 percent to $88.21 per barrel in London, the lowest since December 2010.

Russia’s central bank intervened in the past 10 days to stabilize the currency, central bank Governor Elvira Nabiullina told lawmakers in Moscow today. The action, which comes as President Vladimir Putin orders a withdrawal of Russian forces from Ukraine’s border, has failed to halt the ruble’s drop amid a domestic foreign-currency shortage stemming from sanctions. The cost to swap rubles into dollars widened to a record, while wagers for interest-rate increases climbed to a six-year high.

The main driver for the ruble right now is the oil price,” Dmitry Polevoy, the chief economist for Russia at ING Groep NV, said in an e-mailed note. Crude’s decline “totally eclipses” the “reassuring news” that Russia announced it was pulling back forces from Ukraine’s borders, he said. The ruble slid 0.9 percent to a record 51.3120 versus the euro and lost 0.3 percent to 40.4350 against the dollar.
Russia's $400 billion-something reserves sound impressive until you hear about the rate they're burning cash. I am not entirely surprised that they've pulled back troops from the border with Ukraine with few histrionics. Apparently not even mighty Russia can buck Western hegemony circa 2014. As its currency drops and drops without end in sight, the interim verdict is inevitable -

The West has got Putin by the balls.
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US Hates Competition: Killing PRC's World Bank Rival

♠ Posted by Emmanuel in , at 10/13/2014 01:30:00 AM
US seeks to strangle Xi Jinping's baby in its cradle.
The "market" for development lending is dominated by institutions with no small amount of American influence. Remember, the United States always has a say in choosing who gets to be the head of the World Bank, the global development lender. It too is a force to reckon with among regional development lenders--the European Bank for Reconstruction and Development (EBRD), the African Development Bank (AfDB), the Inter-American Development Bank (IADB) and the Asian Development Bank (ADB). Recently I discussed China's plans to create a rival to American hegemony in development lending that focuses on infrastructure projects--something China ought to know a thing or two about--the much-touted Asian Infrastructure Investment Bank (AIIB). If it becomes reality, it would represent a rival to the Asian Development Bank whose joint largest shareholder alongside Japan is the United States.

Or so it would. One of the interesting things happening behind the scenes right now is the United States pulling out all the stops to ensure that the AIIB is stillborn. From the New York Times:
[I]n quiet conversations with China's potential partners, American officials have lobbied against the development bank with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project, according to senior United States officials and representatives of other governments involved. Call it the "League of Nations" strategy: strip it of legitimacy by not having participation from respected members of the international community and it will die off soon:
 
The dispute, the latest manifestation of Chinese-American competition in Asia, could escalate in coming weeks, as Beijing pushes to confirm South Korea and Australia as founding partners of the bank in time for Mr. Xi to formally announce it at a summit meeting of Asian leaders in November [APEC 2014 in Beijing]. President Obama is scheduled to attend the meeting, and Washington is pressing the two countries to reject the Chinese plan.
What the US is attempting to do is strong-arm erstwhile allies into not contributing capital to AIIB. Note that among those not solicited are arch-American toady Japan as well as India which it has something of a regional rivalry with:
Beijing has asked dozens of nations to contribute funds to the bank, which it calls the Asian Infrastructure Investment Bank, and hopes it will become a global institution that rivals the World Bank. To give it broader scope, the Chinese have invited and won the support of some wealthy Middle East nations, including Qatar and Saudi Arabia. But if Washington persuades South Korea and Australia to abstain, it would all but ensure membership in the bank would be limited to smaller countries, depriving it of the prestige and respectability the Chinese seek.
 
The United States Treasury Department has criticized the bank as a deliberate effort to undercut the World Bank and the Asian Development Bank, international financial institutions established after World War II that are dominated by the United States and Japan, senior South Korean and Australian officials said. Washington also sees the bank as a political tool for China to pull countries in Southeast Asia closer to its orbit, a soft-power play that promises economic benefits while polishing its image among neighbors anxious about its territorial claims.
The truth of the matter is simpler: despite the doubt and fearmongering Washington wishes to propagate, there are massive infrastructure requirements in the region going forward that will hardly be met by the World Bank and ADB:
But Washington's arguments run up against undisputed needs on the ground in Asia — needs that existing institutions have been unable to meet, some development experts said. The Asian Development Bank estimated in 2009 that the region would need as much as $8 trillion in investments in physical infrastructure by 2020 — an amount that exceeds what it or the World Bank can muster, experts at the two banks said.
Personally, my objections to this American meddling is simpler. Neoliberal policy dialogue spouted by the World Bank and ADB champions the beneficial effects of competition in raising the quality of product or service offerings as well as forestalling monopoly. OK, fine. If this principle holds in development, I do not see why it should not apply to development lending:
A literature review shows that competition policy reforms allow markets to work more efficiently for the benefit of consumers and drive sustainable economic growth. Three main insights emerge: Greater market competition matters for achieving greater innovation, productivity, and economic growth. Policies that help open markets and remove anticompetitive regulations can promote competition, resulting in lower prices and better deals for consumers and firms. And effective enforcement of competition rules across sectors—rather than the pure existence of competition laws—makes a difference in the impact of competition policies.
Bottom line: the US is using anti-competitive practices like strong-arming would-be AIIB contributors [1, 2] to the detriment of alternate sources of much-needed infrastructure funding in our region. As objectionable as the Chinese can be, it is up for would-be borrowers to decide for themselves whether they want to borrow from them instead of the United States.

America, can't you for once mind your own business and allow the "competition" you champion to flourish? Let the best development lender win.
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Zimbabwe & 'Global Depopulation Policy' Conspiracy Theory

♠ Posted by Emmanuel in , at 10/12/2014 01:30:00 AM
While I am partial to Latin conspiracy theories which surpass the limits of credulity, I must tell you there are even more outlandish crackpot conspiracy theories out there to captivate the feeble-minded. Among the most fantastical flights of fancy is the so-called "Global Depopulation Policy" supposedly foisted by the United Nations to reduce population growth in poor countries. Aside from developing country groupings at the United Nations like the G-77 never mentioning let alone protesting this nonsense, people with too much free time have spun it a number of ways. Among other alleged means the CIA / NSA / military industrial complex / Trilateral Commission / Club of Rome / Rand Corporation / Goldman Sachs / Carlyle Group / [insert your favorite Master Organization for Global Domination here] use to depopulate poor countries are:
  • civil war
  • famine
  • introducing AIDS to the African continent
  • introducing the Ebola virus to the African continents
Apparently, this nonsense has quite a following, otherwise it would not persist after all these years. Witness this open letter by some guy who claims the British government is out to kill him for Zimbabwe to stop bowing to the wishes on the UN and other agents of global domination:
Zimbabwe was forced into the Global Depopulation Policy in 1978, when the World Health Organization deliberately infected a large number of people with the HIV virus (a bioweapon developed by a cooperative effort between American and Soviet scientists working for the military-industrial complex) under the cover of a smallpox immunization program. As a result, the total fertility rate decreased from 7.3 children per woman in 1980 to 3.4 today, the mortality rate increased from 9 to 15 deaths per 1000 people, and life expectancy for men went down to 44 years and for women to 43 years (from 60 in 1990), the lowest in the world. The HIV/AIDS infection rate in 2001 reached an astounding 34% of the population aged 15 to 49 years and it currently stands at 16%. Given that the population of Zimbabwe is not projected to grow at all over the next 30 years, even though the crude birth rate is twice as high as the crude death rate, one can only surmise that your government is allowing the UN to subvert your people’s reproductive rights and abilities through chemical sterilization programs that are administered under the pretext of improving child and maternal health
Actually, the truth is not out there but right in your face: GET A LIFE. The Man is not keeping you down, but your own delusions. 

[Non-]DISCLOSURE: Despite expressing "attitudes of elegant despair on subprime globalization," be wary since I may actually be a double agent for the running dogs of capitalism who pull the levers of the world economy. Additionally, these posts may be mind-altering distortions conceived by the Syndicate as I help prepare the Earth for eventual alien takeover. I may also be a wanted man since at least eighty (at last count) governments have marked me for immediate liquidation.
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Why Catalan Secession Trumps Scots' Case

♠ Posted by Emmanuel in at 10/10/2014 01:30:00 AM
90,000 at the Nou Camp (and counting) support secession.
Here we go again: the Catalans have scheduled a referendum on remaining in Spain on November 9. However, there is a rather large complication in that the central government in Madrid does not recognize this referendum and would not even consider an outcome that tilts toward secession. So, the stage is set for another secessionist movement. More so than the question of Scottish independence, this one may have greater implications for the fate of the EU. For one thing, Catalunya is the wealthiest region in the country. For another, also consider that Spain is actually in the eurozone and things could get ugly real soon:
The Catalonian independence movement has been gathering strength for many years. But right now, it appears to have reached a tipping point. Following the Scottish vote, the regional government of Catalonia set its own independence referendum for Nov. 9. The question will be very simple. Do you want to remain a part of Spain or not?

The trouble is, the Spanish government has flatly rejected the right of Catalans to choose. The constitutional court has rejected the vote, and it remains to be seen whether it goes ahead. If it does, and Catalans vote yes, it will be hard to resist granting its independence. After all, the days when people were forced to remain in a state against their democratic will are meant to be long behind us. 
While Scotland would have been less viable on its own, prospects are rather better for an independent Catalunya. Instead of being a net beneficiary of being inside the UK like Scotland, most calculations suggest Catalunya subsidizes the rest of Spain:
It would have a gross domestic product of $314 billion, according to calculations by the OECD, which would make it the 34th largest economy in the world. That would make it bigger than Portugal or Hong Kong, which are perfectly viable by themselves. Its GDP per capita would be $35,000, which would make it wealthier than South Korea, Israel or Italy. There is nothing for anyone to be afraid of there...

For all the nationalist rhetoric, Scotland had relatively little to gain from independence. The U.K. is a relatively successful economy, and while Scotland has been doing reasonably well, it has an aging population and faces declining oil revenues. It was subsidized by the larger country it was part of, and was likely to become more dependent on it as time passed.

Although the numbers are hotly debated, there is plenty of evidence that a wealthy Catalonia subsidizes the rest of Spain. Worse, Spain itself is locked into a dysfunctional currency union, which, despite a minor upturn this year, offers little apart from grinding recession, mass unemployment and rising debt.
In a past post, I've discussed the politics of football: Barcelona FC as a rallying point for Catalan independence and Real Madrid as one for the concentration of power in the Spanish capital. Given the importance of football politics to life in Spain, the threat of expulsion from La Liga of the world's second most valuable football club (after Real Madrid) may be the thing that ironically keeps Catalunya in Spain:
The president of La Liga said today that Catalan clubs like Barcelona and Espanyol would be excluded from Spain's top tier should the region succeed in its push for independence from Spain. Javier Tebas said the country's sports law entitles only one non-Spanish territory - Andorra - to legally participate in the league or other official competitions.
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The Myth of Democratic, Meritocratic Hong Kong

♠ Posted by Emmanuel in , at 10/09/2014 01:30:00 AM
They didn't use words like "colonial" and imperial" way back when for nothing.
I am utterly befuddled by (mostly uninformed Western) commentary that depicts protesting Hong Kong students as pro-democracy heroes decrying the slide of Hong Kong away from democracy and meritocracy. Supposedly, these new heroes are pointing out the rough, new reality of Hong Kong after the 1997 handover as PRC apparatchiks have coarsened civil society in the same way that they have in the mainland. In this version of events, things have gone downhill in terms of protecting civil liberties and that chestnut beloved by the gweilo (white people), the Horatio Alger-esque story that anyone willing to work hard can success regardless of their background.

However, if we do not look at matters through rose-tinted glasses, consider two points: First, hankering for the British colonial era as a time of widespread democracy is revisionist to the core. Sure, many of these kids protesting were but tots when the handover occurred, but surely their parents told them the governor of Hong Kong was appointed by the ruling British party? Consider the case of Chris Patten, the legendary "Fat Pang," who tried to run Hong Kong as if he were elected (and its residents tried to humor him accordingly):
Patten continued to behave differently to his predecessors; although, unlike his predecesors for many generations, he did not speak either Mandarin or Cantonese, he used to go for informal strolls in the streets, chatting to people and pressing the flesh.  In fact, he was behaving like the seasoned democratic politician that he actually was. Trouble was, Hong Kong had never seen such an animal before. As my Taipan [friend] remarked, "When will he stop kissing babies in Mong Kok? Doesn't he realise he doesn't have to get elected in this job?"
So there. Great Britain was "democratic" by Western definitions, but its overseas territories certainly were not if electoral participation is your yardstick. End of story.

Second, another fantasist's narrative I keep hearing that gets my eyes rolling is the idea that inequality is significantly increasing in Hong Kong after the handover. Supposedly, Hong Kong was previously a Don King-esque, "Only in Hong Kong" sort of place where anyone with ambition, drive and talent could get rich. Witness these sorts of sob stories:
Hong Kong, China - It used to be a place where anyone who worked hard, excelled in school and possessed an entrepreneurial spirit could rise above their parents' hardship to a better life. That was the Hong Kong dream. Today, that dream has become a mirage - where meritocracy is seen to be supplanted by business and political connections, where good jobs and university places are keenly contested by the mainland Chinese. Young people in Hong Kong fear they are losing out as the playing field tilts increasingly towards China. 
The tens of thousands of people protesting on the streets are not just fighting for democratic reform, they are also struggling for their economic survival in the former British territory returned to China in 1997. "After 1997, you have to have good connections to get a good job. This is not an equal opportunity society anymore," said 54-year-old Jason Wong, a retired investment banker. "The rich and those in power have a better chance."
Again, this is simply not true. If you look at the illustration charting inequality in Hong Kong above, the Gini coefficient was about 0.52 during the handover, and has since gone up to slightly below 0.54. Actually, the largest increases in inequality came at the tail end of British rule from 1981 to 1996 when it zoomed from about 0.45 to 0.52. If there's someone who needs to be called into account for gaping inequality in Hong Kong, then, it would be the British administrators pre-handover, not the PRC toadies who now run the show.

Bottom line: Hong Kong remains as cutthroat now as it ever was. Social safety nets are few, and it's always been a dog-eats-dog sort of place. Many people do not like the frantic pace of life, the pollution and so on, but others thrive on it. (One of the largely unspoken advantages of reintegration is that you can resettle in less hectic places on the mainland if you wish.) This ain't WussWorld, son. As I said before, Hong Kong is the capital of capitalism. Go ask Milton Friedman.
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Crackpot Argentine Conspiracy Theory of the Day

♠ Posted by Emmanuel in , at 10/08/2014 01:30:00 AM
Argentina needs divine intervention right about now.
I am a true connoisseur of the Latin loonie left; the crazier the better. Devaluation, hyperinflation, you name it and I'm morbidly fascinated with the depths of economic mismanagement they can achieve. I relish Peronesque cults of personality, over-the-top socialist rhetoric, and retro-Stalinesque efforts to control the commanding heights of the economy. The prize statement on the state of the Latin left revival as far as I'm concerned is this one: "Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe." Yesterday, we talked about how fiction has become an everyday thing in Venezuela. Today, let us turn to Argentina.

The usual scapegoat for Latin economic mismanagement is the United States. Whenever in doubt, blame America. While I do believe that the US sticks its nose into the business of Latin American countries, it doesn't necessarily do so more than it does elsewhere. What's more, it defies belief that all your problems can be put down to someone else and none to yourself.. However, this recent outburst must top them all in terms of vanity: Argentine President Cristina Kirchner suggests the US is out to topple her government by killing her:
Argentina's President Cristina Kirchner charged in an emotional address that domestic and US interests were pushing to topple her government, and could even kill her.Domestic business interests "are trying to bring down the government, with international (US) help," she said.

Kirchner said that on her recent visit to Pope Francis -- a fellow Argentine whose help she has sought in Argentina's ongoing debt default row -- police warned her about supposed plots against her by Islamic State activists. "So, if something happens to me, don't look to the Mideast, look north" to the United States, Kirchner said at Government House.
But wait, it gets better:
Just hours after the US embassy here warned its citizens to take extra safety precautions in Argentina, an aggravated Kirchner said "when you see what has been coming out of diplomatic offices, they had better not come in here and try to sell some tall tale about ISIS trying to track me down so they can kill me."

The president said local soybean producers unhappy with prices, other exporters and car company executives, all were involved since they would benefit from a devaluation of the peso, which is being pushed lower by her government's selective default.
This woman needs help. Her far-fetched explanation goes like this: commercial interests which stand to benefit from a weaker Argentine peso--soybean producers and carmakers among them--are conspiring with the US government to remove her by all means necessary to hasten the process of devaluation. If I were truly interested in devaluation, I'd quite frankly wish she'd stay put to further mismanage Argentina into another quagmire. 

In the end, there is no better way to destroy a currency than that, and Kirchner seems to be doing a pretty damn good job of it IMHO. Anyone wants to be their next central bank governor?
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The Only Part of Disney Losing Money - Euro Disney

♠ Posted by Emmanuel in , at 10/07/2014 01:30:00 AM
Mona Lisas and Mad Hatters, sons of bankers, sons of lawyers.
I visited Euro Disney in 1994, two years after it opened. After informing our Parisian cab driver that we wanted to go to the new theme park, he nodded quietly, started the meter, and sped off. While a colleague checked on his current destination on the walkie-talkie, our driver chuckled while saying "Euro-disne." The cultural disdain the Frenchman had for this American affront (and the dumb tourists heading there, it must be said) was clearly palpable.

I suppose that this memory stays with me insofar as Euro Disney has been unprofitable for much of its existence. For what reason I have not really understood since it is virtually indistinguishable from any other Disney theme park in the world as far as I can tell. If they do well, then why can't Euro Disney? My memory aside, the fact is that for all the French snootiness about cultural preservation when faced with the onslaught of Americanization-as-globalization, the second-largest market for McDonalds worldwide is France. So, it cannot be a purely cultural phenomenon going on here as Walt's company engages in a debt-for-equity swap:
Walt Disney Company will inject cash into Euro Disney as part of a recapitalization plan worth about 1 billion euros, or about $1.25 billion, in hopes of improving the troubled theme park operator’s financial position. Disney, the California media and entertainment giant, will inject €420 million in cash in exchange for shares. Euro Disney’s debt will be reduced as the parent company converts about €600 million in debt into shares. Disney, which owns 40 percent of Euro Disney, will also defer certain loan payments until 2024.
For another thing, Euro Disney is hardly dependent on the French market. Remember that France is by far the world's most popular tourist destination. Partly chalk this down to a generalized European downturn, then, as bringing the family to the outskirts of Paris is one of the first things to go on the to-do list:
Euro Disney, which opened outside Paris in 1992, has struggled over the years with financial issues, mainly tied to its debt. The French company last turned an annual profit in 2008 ahead of the financial crisis, when it had an occupancy rate of over 90 percent at its resort hotels and more than 15 million visitors. Euro Disney earned €1.7 billion that year. 

It has posted an annual loss every year since then, topping €78 million for the fiscal year ending on Sept. 30, 2013. The company also has seen a severe decline in visitors in the past two years after surpassing 16 million in 2012. That year, Disney agreed to refinance €1.3 billion in debt for Euro Disney. The French company has suffered declining attendance this year, which has cut into its revenue forecasts. Euro Disney had 14.9 million visitors in 2013 but expects to have only 14.1 million to 14.2 million visitors this year.
They make business cases out of Euro Disney since its financial performance remains enigmatic until now. Meanwhile, the parent company is hardly strapped for cash so it's riding in to the rescue as it has so many times before. You have to wonder though if it may throw in the towel sometime after spending good money after bad time and again.
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Forex Fantasyland: Venezuela's 'Official' Rate

♠ Posted by Emmanuel in ,, at 10/06/2014 01:30:00 AM
Would you like some truth with that?
Latin America's current state-of-the-art in economic mismanagement is exemplified by Venezuela, but that's not really saying much for it's arguably been the regional leader for several years now. Galloping inflation, shortages of basic commodities, runaway crime rates...everything bad is happening there, and any half-wit can see through their leaders' deception that "it's all the fault of the West." Life is what you make it, and I'm afraid the econo-comedians who actually buy into all that socialist stupidity get what they deserve.

A few months ago, I discussed the four-tiered exchange rate system in Venezuela, beginning with that from forex fantasyand, the "official" rate, to that which actually prevails in the streets of Caracas which is many times higher. If it's hard to imagine this abstraction, the good folks at Reuters have now produced a photo essay illustrating how ludicrously expensive different items would be if we believed the "official" exchange rate and nasty things like galloping inflation did not exist. With a nod to the Economist's Big Mac Index, I took the example of the burger whose price has risen much in recent weeks:
Venezuela's economic crisis has led to some shocking and surreal price distortions that hit people's buying power dramatically.

While the government of President Nicolas Maduro calls the country's minimum wage of Bs. 4,252 the highest in the region when converted to $675 using the official exchange rate [Bs. 6.3 to 1 USD], the galloping black market for currency considers it as just $42.50 when converted at the street rate of Bs. 100 per US dollar, the rate which many importers and retail outlets must use to acquire hard currency.

Venezuela's annual inflation rate of more than 63 percent is the highest in the Americas, according to official statistics. 
Now you understand what misery truly is--although I expect it to things to get even worse there. 
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Got $70 Trillion? The Rise of Shadow Banking

♠ Posted by Emmanuel in at 10/05/2014 01:30:00 AM
The latest IMF Global Financial Stability Report has some interesting findings about the state of shadow banking, defined by the IMF as "financial intermediaries or activities involved in credit intermediation outside the regular banking system, and therefore lacking a formal safety net." In particular, there are debates about its size due to measurement issues and its consequent implications for--you guessed it--global financial stability. I am particularly struck by Figure 2.3 depicted above which purports to be a simplified representation but has my head spinning. At any rate, what follows are summaries of the findings. For the most part, regulatory arbitrage and the growth of investible funds at a time of loose money policies are driving the phenomenon in the developed world:
  • Although shadow banking takes different forms around the world, the drivers of shadow banking growth are fundamentally very similar: shadow banking tends to flourish when tight bank regulations combine with ample liquidity and when it serves to facilitate the development of the rest of the financial system. The current financial environment in advanced economies remains conducive to further growth in shadow banking activities [i.e., low interest rate environments coupled with official intervention in capital markets].
  • Most broad estimates point to a recent pickup in shadow banking activity in the euro area, the United States, and the United Kingdom, while narrower estimates point to stagnation. Whereas activities such as securitization have seen a decline, traditionally less risky entities such as investment funds have been expanding strongly.
  • In emerging market economies, shadow banking continues to grow strongly, outstripping banking sector growth. To some extent, this is a natural by-product of the deepening of financial markets, with a concomitant rise in pension, sovereign wealth, and insurance funds.
  • So far, the (imperfectly) measurable contribution of shadow banking to systemic risk in the financial system is substantial in the United States but remains modest in the United Kingdom and the euro area. In the United States, the risk contributions of shadow banking activities have been rising, but remain slightly below precrisis levels. Our evidence also suggests the presence of significant cross-border effects of shadow banking in advanced economies. In emerging market economies, the growth of shadow banking in China stands out.
  • In general, however, assessing risks associated with recent developments in shadow banking remains difficult, largely because of a lack of detailed data. It is not clear whether the shift of some activities (such as lending to firms) from traditional banking to the nonbank sector will lead to a rise or reduction in overall systemic risk. There are, however, indications that, as a result, market and liquidity risks have risen in advanced economies (see also Chapter 1).
  • Overall, the continued expansion of finance outside the regulatory perimeter calls for a more encompassing approach to regulation and supervision that combines a focus on both activities and entities and places greater emphasis on systemic risk and improved transparency. A number of regulatory reforms currently under development try to address some of these concerns (see Annex 2.4). This chapter advocates a macroprudential approach and lays out a concrete framework for collaboration and task sharing among microprudential, macroprudential, and business conduct regulators.
My general interpretation is that the banks are always a step ahead of the regulation game in which "more transparency" is always being asked for. Once they manage to comply, the banks are already onto another set of new financial instruments that skirt these regulations. Basel IV...Basel V, Basel VI, etc., soon follow. It is an essential characteristic of capitalism to constantly seek better returns, and if this involves moving into grey areas, banks will naturally do it.
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Mainlanders Protest Hong Kong Shopping Disruption

♠ Posted by Emmanuel in at 10/03/2014 01:30:00 AM
Shopping! We're always happy when we shop until we drop.
There's interesting side commentary on the ongoing Hong Kong protests that focuses on the responses of visiting mainlanders to ongoing events there. Instead of having a nice, restful holiday during Golden Week in Hong Kong as they planned a few weeks ago, they are instead confronted by the sight of protesting bourgeoisie. Aside from the lack of a hard crackdown apart from the first few hours when students were tear-gassed, other commentary concerns how well-behaved the mainlanders have found the protesters. As it turns out, they are following a script on civil disobedience that does not give the authorities grounds to crack down hard.

Being a rather shallow, sort, however, I was more intrigued by the annoyance caused to the mainlanders on shopping trips to Hong Kong. While Hong Kong shops aren't exactly cheap due to the rents they have to pay, taxes are generally lower than on the mainland, making HK shopping a relative "bargain." Meanwhile, those damn protesters prevent you from going from Tsim Sha Tsui to Central easily as they clog the road and slow down public transportation. How dare them!
Chinese tourists pouring into Hong Kong this week for a shopping holiday are getting an unexpected lesson in democracy from the city’s tens of thousands of protesters demanding free elections. So far, most of them are unimpressed. “We’re just here to go shopping,” says a young woman from Guangzhou, standing with a friend outside of a jewelry store on a shopping street in Mongkok, Kowloon that has been turned into one of several protest sites for demonstrators of Hong Kong’s so-called “Umbrella Revolution.”
We then get to the commerce-killing qualities of the protesters:
The arrival of thousands of Chinese tourists for the country’s annual one-week holiday at the beginning of October—known as Golden Week for the amount of shopping and leisure travel that takes place—is one opportunity to start that process. One woman handing out leaflets on Canton Road in another Kowloon neighborhood, Tsim Sha Tsui, where protesters have blocked traffic in between stores like Coach, Fendi, Dolce & Gabanna, Prada said mainland shoppers had only come up to ask for a bottle of water or some of the snacks on reserve for the protesters. They didn’t inquire about the demonstrations...

But Chinese tourists in Hong Kong today seemed not only surprised to see their favorite shopping districts overtaken by activists, but also annoyed, and critical of the demonstrators. Shoppers hustled by a group of students, young professionals, and older local residents sitting along Canton Road, listening to speeches and folding yellow ribbons, a symbol of the protest. “Too much democracy can get chaotic,” said a man from China’s northern Shandong province, who would only name his surname, Ma, as he and his family observed the group.
Meanwhile, global equity markets are getting all shook up by the events in Hong Kong. Why don't we hear about the rights of international shoppers to buy luxury goods during regular store hours? Certainly it's a human rights violation at least on par with what these busybodies are complaining about. While the protests are not finished yet, businesses expect these disruptions to have taken their toll in what would otherwise would have been a season of selling:
Louis Chan, chief executive of the residential division at Centaline Property Agency Ltd., one of Hong Kong's biggest real-estate companies, said he expects the protests to put potential buyers off viewing new properties. He said the number of property viewings on Hong Kong island fell 50% over the past weekend, when protesters blocked the streets. "I think the overall property sales will drop by 30% this week compared with early September if the street protest continues," Mr. Chan said. Sammy Po, chief executive of Midland Realty's residential department, said number of property viewings in its Wan Chai and Causeway Bay branches fell 50% in the past two days, compared with a week earlier
And, of course, there's retail:
“It’s still too early to gauge how much business we lose during the Golden Week,” Chow Sang Sang sales operations director Dennis Lau said in an interview. “It may be a headache for some shoppers trying to go to districts such as Mong Kok and Causeway Bay as buses and taxis aren’t running.” The economic loss for shopping malls and office buildings is at least HK$40 billion ($5.2 billion), China Central Television reported yesterday, citing business associations. The protests aim to paralyze transportation, harm the rule of law and disrupt business to pressure the government into accepting “various unreasonable demands,” CCTV reported.
Besides...

...the Man's too big...the Man's too strong
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